nder a new federal law to address money laundering and other financial crimes, business entities must file new information reports with the US Department of the Treasury starting January 1, 2024.
The Corporate Transparency Act (CTA) requires an informational filing with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
The purpose of the CTA is to combat money laundering, terrorism, and human trafficking. The filings provide law enforcement with information on the ownership and control of business entities obscured behind shell companies and non-disclosure. The information is confidential and, generally, will be available only to law enforcement and banks.
However, the law imposes a strict and—in some cases—complex reporting burden on many businesses.
While the reporting obligation appears straightforward, often it’s not clear whether an entity must file. There are important exemptions for entities considered by FinCEN to be low risk or already highly regulated:
- Large Operating Companies: Entities with more than twenty full-time employees and more than $5 million in gross revenue.
- Subsidiaries of Large Operating Companies: Subsidiaries controlled or wholly-owned, directly or indirectly, by a Large Operating Company (or other exempt entity).
- Government agencies or authorities.
- Banks, credit unions, and insurance companies.
- Public utilities.
- Tax-exempt entities under § 501 of the Internal Revenue Code.
- Other Highly-Regulated Entities: Entities subject to reporting under the federal Securities Exchange Act, Investment Company Act, or the Commodity Exchange Act.
- Most trusts, including Alaska Native Settlement Trusts (because trusts are not created by filing).
For example, if an Alaska Native regional corporation owns 25 percent of an LLC, the LLC would have to disclose information about beneficial ownership of the Alaska Native corporation. This could mean disclosing individuals in senior management. Who, exactly, will depend on the organizational and operational structure of the Alaska Native corporation. Guidance on this issue is still evolving, and companies should seek counsel to determine which members of management must be reported.
In another example, if an Alaska Native regional corporation only owns 20 percent of an LLC, but it is also the manager of the LLC, the LLC would have to disclose information about beneficial ownership of the Alaska Native corporation (including individuals in senior management).
Reporting requirements may apply directly to some smaller Alaska Native village corporations as well. Some village corporations that do not have more than twenty employees and $5 million in annual gross revenue will have to report beneficial ownership information. This could include officers, management, possibly some or all directors, and others who have substantial control over the corporation.
As a first step toward compliance, all businesses should evaluate their organizational structure, including any investments through subsidiaries. Any entity with less than twenty employees and $5 million in revenue must report unless they qualify for another exemption.
Note that, with few exceptions, the information to be reported relates to individuals, not entities. Organizational structures are collapsed for purposes of CTA reporting so that information must be provided about the individuals who ultimately own or control reporting companies or beneficial owners.
An initial FinCEN report must be filed within thirty days of formation. There is no annual, biennial, or other periodic reporting requirement. However, an updated report must be filed if there is a change in beneficial ownership, a change or correction in any previously reported information, or if an entity later qualifies for an exemption (e.g., hires additional employees to meet the twenty-employee benchmark). The update must be filed within thirty days after the change.
Alex Kubitz and Ben Spiess are attorneys in Anchorage with Landye Bennett Blumstein. Additional CTA information is available online at lbblawyers.com/resources.